Part 2: Economic Forces*

By William C. Shelton

( The opinions and views expressed in the commentaries of The Somerville Times belong solely to the authors of those commentaries and do not reflect the views or opinions of The Somerville Times, its staff or publishers)

I was taught in my youth that America is the land of opportunity and that my nation is the most egalitarian in the world. This overlooked a significant number of Americans who lived in poverty. But it was truer for the United States than for many countries. In 1978 the median male worker in the U.S. earned $48,302 in today’s dollars.

Today America’s is the most unequal economy in the developed world. The distinction between the middle class and the poor has become blurred as more and more families hover above or slide below the poverty line. The median male worker today earns $33,751 per year, 30% less than in 1978.

In that year, the average income for America’s wealthiest 1% was $393,682. Today it is $959,720, a 243% increase in constant dollars.

Until the great recession, this long descent into inequality was not the result of fewer jobs. Instead, lower paying jobs replaced higher paying jobs. And compensation for middle- and lower-income jobs declined, even though worker productivity steadily increased. Meanwhile, the cost of healthcare, childcare, higher education, and housing in some markets increased faster than inflation.

Mainstream economists most often cite globalization and technology to explain increasing inequality. Robert Reich’s new film, Inequality for All, explores these trends. Some economists also cite demographic changes. Understanding economic forces is necessary, but not sufficient, to explain what happened.

Globalization

Goods, services, money, labor, and corporations now easily move around the world. The first General Agreement on Tariffs and Trade (GATT) in 1947 substantially lowered trade barriers, initially creating an advantage for both American investors and workers. But by the 1970s, the other World War II belligerents had rebuilt their economies with new technology. And emerging third-world economies were beginning to dominate the simplest manufacturing sectors.

The Reagan era brought with it a worship of unfettered markets. The U.S. exported this “Washington Consensus,” pushing for planet-wide deregulation, reduced public spending, privatization, and abolition of trade barriers.

Bipartisan policy legislation during the Clinton administration produced the North American Free Trade Agreement (1993), a new GATT (1994), and other trade agreements. These restricted the use of environmental protections, labor rights, and most tariffs as means of regulating trade.

They promised to increase economic growth, and they did. But the gains went to the wealthy.

“Free trade,” as opposed to “fair trade,” wiped out most clothing and consumer electronics production in the U.S., along with whole manufacturing sectors. The threat of outsourcing enabled corporations to extract wage and benefit concessions from workers and, in some cases, bust unions. Many middle-class jobs disappeared, and many that remained paid less.

Since 1990, job growth has been mostly in sectors not exposed to global competition like government, healthcare, and other services. Between 1999 and 2009, U.S. based multinationals created 2.4 million jobs abroad and eliminated 3 million at home.

Technology

Technological change has been a driver of capitalist economics since the industrial revolution. But digital technology has greatly accelerated the pace and global reach of change beyond that seen in previous generations.

New technologies eliminated many middle-skilled jobs—like production line work, fabrication, cashiering, secretarial work, and long shoring—while increasing demand for the higher skilled jobs required to design, implement, and mange the new technologies. This growing demand for higher skills was met, in part, by an expanding and lower paid work force outside the United States.

Jobs that sustained the broad middle of the labor market—people without college or highly technical training—disappeared. Jobs at the edges of the labor market increased, some in high-skill high-wage occupations, and more in low-skill low-wage occupations like security services, food preparation, landscaping, and home healthcare.

Demographic changes

Some economists point to the fact that median family income growth has slowed or reversed over the same period that single-parent households have increased as a share of all households.

And Sociologists point to an increase in “assortative mating.” Before the huge increase in women’s labor force participation, enabled by the women’s movement and obligated by economic necessity, men often married women who had less education or income than they did. Increasingly people tend to marry others who share their educational and/or economic background, widening the wealth and income gap between families.

Necessary but not sufficient

Globalization, technology, and demographics go only so far in explaining America’s stark and growing inequality. The U.S. is less exposed to free trade pressure than any other of the developed countries that form the Organization for Economic Cooperation and Development, but it is the most unequal.

It’s true that the incomes of workers with college educations accelerated in the 1980s and 1990s, but that trend has slowed, while technological change has increased. Also slowing over that period has been growth in high-skill high wage jobs. Now, they go to a lucky subset of the college educated, while many are stuck in low-wage jobs or unemployed.

Single parent families are more common in Scandinavia, Canada, and Western Europe than they are in the U.S. In fact, U.S. economic inequality is growing faster among families with two parents than between those with one parent and those with two parents.

So an understanding of economic forces is necessary, but insufficient, to explain the hollowing out of America’s middle class. All other developed countries had to cope with these changes, and most, to a greater extent that the U.S. Explaining this requires an understanding of political forces, and that is the subject of the next column.